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The macroeconomic effects of unemployment insurance extensions: A policy rule-based identification approach

Author

Listed:
  • Rubén Domínguez-Díaz

    (BANCO DE ESPAÑA)

  • Donghai Zhang

    (NATIONAL UNIVERSITY OF SINGAPORE AND UNIVERSITY OF BONN)

Abstract

We assess the macroeconomic effects of unemployment insurance (UI) extensions in the US through a novel identification scheme based on the design of the UI policy rule. Our approach exploits differences in the effects of demand shocks across US states with different responses in UI duration. Our results indicate that UI extensions have a significant stabilization role. We then show that a New Keynesian small-open-economy model with imperfect insurance against unemployment aligns with our empirical findings. Finally, we use the model to recover the implied UI multiplier, quantify the different transmission channels of UI extensions and uncover their union-wide effects.

Suggested Citation

  • Rubén Domínguez-Díaz & Donghai Zhang, 2025. "The macroeconomic effects of unemployment insurance extensions: A policy rule-based identification approach," Working Papers 2521, Banco de España.
    • Handle: RePEc:bde:wpaper:2521
    DOI: https://doi.org/10.53479/39665
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    More about this item

    Keywords

    unemployment insurance; UI extensions; heterogeneous agents;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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